Close the Pvt Ltd Company

Overview

When a private limited firm ceases operations, its proprietors might opt for dissolution. The dissolution procedure for such a firm in India is straightforward and involves several steps. Initially, proprietors must adopt a dissolution resolution. This resolution should be registered with the Registrar of Companies (ROC). Following ROC’s endorsement, the firm must publicly declare its dissolution intent. Subsequently, the firm is obligated to clear all outstanding debts and obligations. Post-settlement, any residual assets are to be allocated to the proprietors. The firm is then required to submit a conclusive return to the ROC, along with all necessary paperwork. Completion of these procedures signifies the formal dissolution of the firm.

Why Close a Private Limited Company

Various factors may prompt the dissolution of a private limited company. It could be due to the company becoming unprofitable or the directors choosing to retire. Regardless of the cause, the dissolution process is quite manageable.

Considerations for dissolving a private limited company include:

• Ensuring all financial obligations are settled, encompassing loans, taxes, or any other company debts.
• Completing and submitting all necessary documentation to the Registrar of Companies (ROC), including a declaration of the company’s intent to dissolve.
• Convening a shareholder meeting to approve a dissolution resolution. Following this, an application for voluntary removal can be filed with the ROC.
• After the ROC processes the application, they will publish a strike-off notice, thereby formally dissolving the company.

Advantages of Dissolving a Private Limited Company in India

Dissolving a private limited company in India comes with several advantages. Key advantages include:

• All debts and liabilities of the company are settled.
• Assets are allocated to shareholders based on their share percentages.
• The company is formally dissolved and erased from the Registrar of Companies.
• Shareholders are exempt from any company debts.
• Directors are absolved of responsibility for any wrongful or fraudulent actions by the company.

Considerations for dissolving a private limited company

• Ensuring all financial obligations are settled, encompassing loans, taxes, or any other company debts.
• Completing and submitting all necessary documentation to the Registrar of Companies (ROC), including a declaration of the company’s intent to dissolve.
• Convening a shareholder meeting to approve a dissolution resolution. Following this, an application for voluntary removal can be filed with the ROC.
• After the ROC processes the application, they will publish a strike-off notice, thereby formally dissolving the company.

Guided Steps for Voluntary Termination of a Private Limited Company

• Convene a Board of Directors meeting and approve a termination resolution.
• Announce the termination in two local newspapers.
• Submit a termination notice to the Registrar of Companies (ROC).
• Settle all debts and obligations.
• Allocate any remaining assets to members based on their entitlements.
• Lodge a final return with the ROC no later than 60 days post-dissolution.
• Revoke any other statutory registrations (like Sales Tax, Service Tax, etc.).
• If registered as an NBFC, file for de-registration with the RBI.
• Surrender the registration certificate.
• Close all company bank accounts.

Essential Steps for Company Liquidation

• Secure approval from shareholders and directors.
• Lodge all necessary paperwork with the Registrar of Companies (ROC).
• Resolve all company liabilities, including debts to creditors, employees, and tax bodies.
• Divide the company’s assets among shareholders in line with their stakes.
• Terminate all company registrations and permits with government entities.
• Inform all stakeholders of the company’s impending closure, including suppliers, clients, and financial institutions.

Procedure

The process of closing a Private Limited Company involves the following steps:

The winding-up of a private limited company can be carried out through two processes:

1. Voluntary Winding Up
2. Compulsory Winding Up (by the NCLT)

Voluntary Winding Up of a Private Limited Company

Voluntary winding up can be initiated by passing a special resolution or a resolution in the company’s general meeting. This process depends on the shareholders, who must pass a resolution in the board meeting or general meeting to wind up the company upon the expiration of the period specified in the Articles of Association (AOA) or the occurrence of an event specified for dissolution.

There are two ways to carry out a voluntary winding up:

1. Member’s Voluntary Winding Up:
   • Directors declare the company’s solvency through an affidavit.
   • This declaration must be made within five weeks before the date of the winding-up resolution.
   • The declaration is submitted to the Registrar along with the latest profit and loss statement, balance sheet, and statement of assets and liabilities.

   Steps for Member’s Voluntary Winding Up:

   • Formal declaration by the Registrar
   • Appointment of a liquidator
   • Collection of assets and payment of debts
2. Creditor’s Voluntary Winding Up:
   • If the directors do not declare solvency, the company is presumed insolvent.
   • Creditors meet to pass the resolution for winding up.

   Steps for Creditor’s Voluntary Winding Up:

   • Resolution for winding up in a general meeting
   • Meeting of creditors
   • Appointment of a liquidator by members or creditors
   • Formation of a Committee of Inspection

Procedure for Voluntary Winding Up:

1. Declaration of solvency by directors in a board meeting, verified by affidavit.
2. Notice issued by directors for the general meeting.
3. Resolution passed in the general meeting (ordinary or special with a 3/4th majority).
4. Creditor’s meeting, where if 2/3rd of creditors agree, the winding up proceeds.
5. Notification to the Registrar within ten days of the resolution.
6. Appointment of a liquidator by the Registrar.
7. Liquidator’s report and company’s statement of accounts submitted in a general meeting and to the Tribunal within 14 days.
8. Tribunal’s order of dissolution within 60 days.
9. Registrar’s order of winding up, published in the Official Gazette.

Compulsory Winding Up of a Private Limited Company

If the company engages in fraudulent or unlawful activities, it can be compulsorily wound up by the National Company Law Tribunal (NCLT) or court. The petition for winding up can be filed by the company, Registrar, creditors, Central Government, State Government, or contributors.

Procedure for Compulsory Winding Up:

1. Filing a petition with a statement of affairs.
2. Tribunal/court scrutinizes and accepts or rejects the petition.
3. Appointment of a liquidator by the tribunal/court.
4. Liquidator executes company assets, examines books, and prepares a draft report.
5. Submission of the draft report to the winding-up Committee.
6. Submission of the final report to the tribunal/court after committee approval.
7. Tribunal/court order sent to the Registrar within 30 days.
8. Registrar strikes off the company’s name from the Register of Companies.
9. Notice for publication of winding up in the Official Gazette.

The Companies (Winding-Up) Rules 2020

Under the Companies Act 2019, the Ministry of Corporate Affairs has established the Companies (Winding-Up) Rules 2020 to streamline the winding-up process under Section 271 and the Summary Procedure under Section 361 of the Act, effective from April 1, 2020. The rules provide formats for various forms required under this procedure.

Documents Required

The following documents are essential for the termination of a private limited company in India:

• A board resolution endorsing the company’s closure and the appointment of a liquidator.
• The articles of association delineating the protocols for the company’s cessation and liquidation.
• An official notice indicating the liquidator’s appointment, endorsed by the company directors.
• A solvency affidavit, collectively signed by all directors, affirming the company’s capacity to settle its debts promptly.
• A comprehensive creditor ledger, detailing their contact information and the amounts owed.
• A financial overview compiled by the liquidator, detailing the company’s assets and liabilities at the winding-up date.
• The final financial statements of the company, crafted by the liquidator, covering the duration from the liquidation’s start to its conclusion.